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Dealers Tightening Inventory, Using Less Credit, Finance Firms Report


With the credit crunch
largely behind them, dealers must now
weather what is shaping up to be a slow
summer by tightly managing their inventories
and waiting for consumer confidence
and traffic to return.

That’s the view from the industry’s
three leading floor-planning firms, GE’s
Capital Solutions, TCF Inventory Finance
and Wells Fargo Capital Finance,
which have an insider’s vantage of retailer
and vendor finances and operations.

As Capital Solutions’ president/CEO
Jeff Malehorn observed, “Financing for
electronics and appliances started out
positive in the beginning of 2011. We
have seen a bit of a slowdown in the second
quarter though, due to more pessimistic
economic news and the expiring
of the government appliance stimulus
in 2010. Independent dealers are hanging
tough, adjusting inventory levels and
products to meet demand. They are managing
inventory very closely these days.”

Steve Metivier, managing director of
the retail finance division of Wells Fargo
Capital Finance, concurred. “When the
economy soured, the smart retailers
buckled down, reduced inventory levels
by 15 to 20 percent, cut expenses,
and slowed new store growth. These
measures have allowed electronics and
appliance retailers to preserve liquidity
and better position themselves for the
expected slow recovery.”

For TCF Inventory Finance, the weak
recovery has meant slow or no growth
during the first half of the year. “[Our] electronics and appliance business is
flat to slightly ahead of last year,” acknowledged
H. James Hentz, the company’s
executive VP and corporate
development officer. “The dealers are essentially
tracking steady with a year ago
and there is a sense that there will be further
improvement as the year progresses
… While there are still some individual
dealer challenges, there continues to be
overall improvement with dealer credit.”

Capital Solutions’ Malehorn reported
“a good first few months of the year following
a slow 2010 holiday season,”
and now anticipates “continued steady
performance” now that dealers have
cleared out older models and are at appropriate
inventory levels.

The improving credit markets have
also created new opportunities, said
Metivier, by bringing “a lot of new business”
to Wells Fargo and allowing current
clients to refinance old deals and
finance new strategic ventures.

Looking ahead, the executives agreed
that the business outlook remains
somewhat murky. “It is hard to get a
good read on this year’s holiday season,
particularly with electronics, given the
challenges caused by the disaster in Japan,”
Hentz said.

Malehorn, who now provides services
to both the Nationwide and Brand Source
buying groups, expects that the industry
will have a better feel for the fourth quarter
after next month’s round of trade shows
and buy fairs. He also sees a longer-term
issue in dealer attrition, as independents
without succession plans or buyers simply
close shop upon retirement.

Meanwhile, Metivier remains “cautiously
optimistic” about the holiday
season. “We are certainly seeing the
‘barbell’ effect with retailers at the high
and low ends doing the best,” he said.
“Consumers are spending again, although
cautiously, and we expect consumers
will remain cautious throughout
the remainder of the year. Consumers
continue to be focused on value at all
price points, and the retailers who are
perceived as offering the best product
for the best value will be the winners.”